MARKET BEAT / TOM PETRUNO

Murdoch Grounds Out on Wall Street

Whatever the average Angeleno thinks about Rupert Murdoch's bid to buy the Dodgers, Wall Street so far appears unfazed or unimpressed, or both: Shares of News Corp., Murdoch's holding company, have fallen from $18.75 last Friday to $18.25 as of Tuesday and are hovering just above their two-year low of $17.75.

Evidently, too few investors have read Sir Rupert's letter to shareholders in the 1996 News Corp. annual report, in which he discusses at length the company's strategy of vertical integration--not only producing news, sports and entertainment, but delivering it all to the world via News Corp.-owned TV stations, cable networks, newspapers, magazines, books and, perhaps most important, "multimedia satellite platforms."

"Once we have established our platforms around the world--a goal which is well within reach--the potential for our company and our investors is truly awesome," Murdoch assured shareholders.

If Wall Street still is highly skeptical about the long-term payoff from Murdoch's $10-billion (annual sales) media empire, there is good reason: Media empire has become a dirty couple of words to string together in the 1990s, at least from investors' viewpoint.

Murdoch's archrivals, the chief executives of Time Warner Inc., Viacom Inc. and Tele-Communications Inc., all have been empire builders as well, and all promised their shareholders fantastic returns as they leveraged their companies to pile up assets.

Instead, Viacom and TCI shares have crashed since 1993. Time Warner stock is barely above its 1993 peak. All the while, the average U.S. blue-chip stock has risen 80%.

The problems of the media empires have been many and varied, but the strategy for destroying shareholder value has been the same in every case. "All of these companies have made huge acquisitions that have been highly dilutive to existing shareholders," says a money manager who has suffered enough at the hands of media moguls to know.

The one shining exception, so far, is Walt Disney Co. The verdict is still out regarding the wisdom of its Capital Cities/ABC acquisition in 1996, but enough has gone right for Disney to generate tremendous returns for its investors over the last few years.

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In no small part because of the rising ire of shareholders, Viacom, TCI and Time Warner all have shifted their strategies from wild expansion mode to one of paying down debt, spinning off subsidiaries, focusing on key, high-return businesses and generally trying to rebuild shareholder value.

But if Murdoch is headed in that direction, "he's headed there the slowest," one analyst says. Indeed, Murdoch still looks to be very much in the business of empire building--the rumored Dodger deal being just the latest potential deal on his plate.

Murdoch's decision in March to buy supermarket coupon publisher Heritage Media for $1.35 billion in stock and debt angered more than a few of his institutional investors, who see no point in Murdoch's using News Corp.'s depressed shares to acquire noncritical businesses.

The good news, at least for Wall Street, is that Murdoch has for now aborted plans to spend untold billions trying to develop proprietary satellite TV in the United States via a joint venture with financially weak partner EchoStar Communications. Many analysts believe satellite TV will never compete effectively with cable in America, regardless of what Murdoch's burgeoning satellite network might achieve elsewhere in the world.

Despite Murdoch's unwavering vision of building a fully integrated global media company--production and distribution--many of his shareholders wish News Corp. would focus more on content: the Fox TV network, the Fox studio, sports programming, etc. To that end, the purchase of the Dodgers would probably win investors' approval.

But with News Corp.'s earnings flat since 1993, Murdoch's family firmly in control of a third of the stock, and his focus still on rapidly building up assets rather than worrying about the share price, the term "Wall Street darling" isn't likely to describe News Corp. any time soon.